Custodia Bank gained a step forward in its legal battle against the Federal Reserve, as a Wyoming federal judge denied motions to dismiss from both the Fed and the Federal Reserve Bank of Kansas City.
The digital asset bank sued the Federal Reserve in June 2022, alleging an “illegal delay” in processing an application for its master account. In 2020, Caitlin Long, a former Morgan Stanley and an early proponent of Bitcoin, founded the bank to provide account services to crypto businesses and serve as a bridge to the US dollar.
“The Federal Reserve’s latest motion to dismiss the Custodia Bank lawsuit was defeated once again. We are pleased that the Federal Reserve’s attempt to give itself a veto over state bank charter decisions is now put to use.” evidence in federal court”Custodia Bank spokesperson Nathan Miller told Cointelegraph in a statement.
Custody filed a Federal Reserve Master Account application in October 2020. The request, if granted, would allow the bank to use the Federal Reserve’s payments system, the FedWire network, which process more than 196 million transactions last year. In January 2023, the Fed denied the membership application, saying it was “inconsistent with the factors required by law” and citing the bank’s involvement in the crypto space.
Custodia was one of Wyoming’s first Special Purpose Depository Institutions (SPDIs), also known as “blockchain banks.” SPDIs were created to serve businesses that cannot insure Federal Deposit Insurance Corporation (FDIC) banking services due to their cryptocurrency operations.. In April, the state of Wyoming requested to intervene in the case between the bank and the Fed, defending its framework that allows certain crypto companies to qualify as state-chartered banks.
According to Miller, the Fed is reinterpreting federal laws to give itself special authority that it never received from Congress after decades of automatically granting master accounts to chartered banks.
“The Fed has never had such authority in US history, nor does it need discretion to block banks that have already been validly licensed by state banking authorities that rigorously separate the wheat from the chaff.”Miller continued, adding that Custodia received its bank authorization after more than 150 potential applicants were turned down by the Wyoming Division of Banking. “We expect the court to review this takeover by the Federal Reserve,” he stated.
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